Donald Trump, as the new U.S. President-Elect, has enjoyed an incredible last few days.
The expectations are high as well as the rhetoric. We have seen a .41 basis point rise in the 10 year yield since the election. The dollar is trading at close to a 14 year high. The stock market had a 1250 point turn around the night/morning after the election and seems to be holding gains.
Copper has also been able to hold on to its gains, in spite of some overseas liquidation. It seems as though a lot of things have benefitted from the Trump election, but for some reason it all feels a bit contrived to me.
Nothing is that easy.
Here is where my worries begin. Since the election, as stated above, there has been a firestorm of positive market movements and it just seems to me that the one thing that has remained relatively constant is oil. Having come off the highs since the ‘production limit’ talks, oil has been sitting at the eye of the equity/bond storm.
We all can recall this year that at times, and there were a lot of them, oil seemed to be leading the way for equities. The reasons were that in 2008 the energy sector was a big job producer and combined was reportedly responsible for up to 20% of the new jobs created, at a time when we desperately needed them. If those same energy companies, 8 years later, began to shed jobs amid crashing oil prices, that would be a bad thing for the economy. So bad that it would trump any gains from lower oil prices themselves. I have said for a long time that in and of itself low oil prices are only good if you have a job. If you don’t have a job, you probably don’t need a car hence – no need for gas. If we are all unemployed it doesn’t matter if gas is free, we need capital to use it.
So oil has basically flat-lined after the election, while everything around it has gone haywire.
U.S. Dollar.
The dollar is now flirting with 14 year highs. This is due to the fact that there is now a perception that Trump will be a growth president – an inflationary president. Bonds think so as well. It has been interesting to watch these two things trade recently as if Donald Trump is an economic savior. What I am saying is that he may be just what the electorate may need but it is way too early to tell. Heck, he doesn’t even get sworn in until January. 100 days from January puts us into basically the beginning of May. It is going to be a while before we start to see the fruits from his labor and the election as a whole.
All the while, the economy is staring us right in the face.
The economy doesn’t have a honeymoon period. The economy doesn’t know that there is a new sheriff in town. All the economy knows is the numbers and the numbers don’t lie. Let us remind ourselves what a Trump presidency will have to deal with. Firstly the fact that we are putting people back to work, bringing the unemployment rate down from 10% to 5% yet our economy continues to shrink with it.
That should be alarm bell number one. Secondly, we have been trying to pull forward inflation – or at least borrow it from another developed economy but it just hasn’t happened. Yes, there are pockets where prices are rising but with rates as low as they have been for so long, the economy should be red hot. But it’s not.
When the stuff hit the fan in 2008, we searched for inflation. Cut rates, bought bonds – anything and everything to spur on our economy. 8 years later? Nada. I have said it before, if things are so rosy why is home ownership at a 50-year low? We keep putting these people back to work and lowering the unemployment rate, all the while our economy is shrinking. Doesn’t make sense.
The talking heads want to talk about all the good things in the economy. Given the chance, you can find some bright spots. Housing starts were good last week, and have made the headlines. But, last week’s inflation numbers fell flat. Both PPI and CPI are cool. The next thing out of their mouths will be ‘inflation is around the corner’. Well, that corner must be the size of the Grand Canyon because we have been saying that for 7 years.
When is this inflation going to ignite? Why couldn’t inflation ignite for the 7.5 years we had zero percent in interest rates? I guess you can see that I still feel as though we have the same economy we did on Nov. the 7th. Nothing fundamentally has changed except for perception. There is a ton of work to do.
Here is where I think a little caution is needed.
The Fed, first time I have mentioned them in this paper which in and of itself is a miracle, is in a bind. They have basically signaled a rate rise in December. That will be the first one this year. Remember – they told us to expect four rate hikes this year. Yep. Four. The market wants one, the traders want one, the savers want one and the Fed wants one. So, regardless of whether or not it is warranted, it’s going to happen.
Tell me that this December will be the strongest the economy has been since 2008 and is in need of a rate hike and I will sell you a bridge over a swamp in Florida. They have basically talked themselves into it as well as the market. It is the culmination of bad leadership, loose rhetoric and a little bad luck. So here comes ‘this year’s one rate hike’.
As the plot thickens, so does the air.
The Fed wants to hike rates in December. The dollar is at a 14-year high, partly due to mania and partly due to a perceived rate hike. And then there is crude oil. Remember, I started out this paper with the fact that for a large part of the year crude oil led equities around by the nose. Then you throw in the fact that we just discovered the largest store of recoverable crude oil ever in the US somewhere in West Texas. I am not sure even a production limit from OPEC at the end of the month could stem the tide.
Could crude oil be the fly in the ointment?
This is my worry. With a strong dollar the economic data continues to disappoint and comes in weaker. Then we don’t get as large a production cut or no cut at all from OPEC at the end of the month. Then in December the Fed decides to hike rates, even though the economy doesn’t really warrant it and then oil starts to slide. If oil really begins to melt it could bring a lot of other things down with it. Namely equities. The reason I am most worried about this is that the market is behaving like it is the Roaring 20’s – nothing to worry about.
I hope not.
eugene on Tue, 22nd Nov 2016 8:17 am
I don’t know what world you live in but in mine there’s inflation and a good bit of it. Evidently, you use the government’s doctored figures as the true inflation rate.
paulo1 on Tue, 22nd Nov 2016 8:57 am
Yeah, this twit doesn’t shop for groceries. Maybe he lives at home with his folks.
forbin on Tue, 22nd Nov 2016 9:21 am
Well, that corner must be the size of the Grand Canyon because we have been saying that for 7 years.
well as previous posters state – HMG CPI here is crap – 7 year? , hmm, quick check shows
8 Oct 2011 – The rate of Consumer Prices Index inflation rose to 5.2% in September from 4.5%
5 years ago , and my index of food 23% since 2011 and leccy 20%
also
Then you throw in the fact that we just discovered the largest store of recoverable crude oil ever in the US somewhere in West Texas.
Has anyone told West Texas ? 😉
shortonoil on Tue, 22nd Nov 2016 9:26 am
“I am not sure even a production limit from OPEC at the end of the month could stem the tide. “
The world now has an oversupply issue of somewhere between 5.75 mb/d to 13 mb/d. A production limit by OPEC will do very little to alleviate that situation. Mr. Market appears to be aware of this; in spite of the jawboning being done by OPEC, and the cheer leading done by the clueless media prices opened this morning down 22¢.
A barrel of oil no longer supplies enough energy to the economy to enable it to buy all of that barrel. Continually increasing production costs have finally made their mark. 11,700 foot wells in McKenzie county were obviously not a good idea. The industry has priced itself out of its own market!
A study of the energy dynamics of the industry produced these graphs:
http://www.thehillsgroup.org/depletion2_022.htm
The entropic decay of the Petroleum Production System is killing the industry. That should not come as a surprise because the same could be said for an old dying tree. Inventories will continue to build, production cost will continue to increase, and the price will continue down.
If Mister Trump had the faintest idea of what he is going to be facing, he probably would not have run for the job!
http://www.thehillsgroup.org/
Davy on Tue, 22nd Nov 2016 10:41 am
Good read on inequality 2016. Of course it has worsened as is pretty obvious.
http://www.zerohedge.com/news/2016-11-22/global-wealth-update-07-adults-hold-1166-trillion-net-assets
Bob Inget on Tue, 22nd Nov 2016 11:50 am
Curious to see if all that West Texas oil can be coaxed from the ground under $50. (it can’t)
Best case, it’ll take two years finding out.
Serious Shortages a Coming.
Coaxing FOOD out of the ground without Venezuelan oil is an entire new kettle of fishes.
Because oil is still selling below cost of production, food, mainly grains are selling at multi year lows. Oil exporting nations are burning the furniture. Certainly Not buying consumer goods.
(arms are not consumed in any constructive way)
Fact is unless oil exporters begin to make money, more to the point, SPEND again, we are doomed.
Fifty bucks won’t cut it. Sixty, break even, minimum.
rockman on Tue, 22nd Nov 2016 12:06 pm
“Because oil is still selling below cost of production”. The cost of production (producing EXISTING WELLS) is much less then the current oil price. Otherwise the world would not have been producing at record levels. The cost of developing NEW WELLS is much higher then the production cost (LOE) of existing fields. But there are still wells being drilled at the current price…just not nearly as many as when prices were much higher.
shortonoil on Tue, 22nd Nov 2016 2:40 pm
“Fifty bucks won’t cut it. Sixty, break even, minimum. “
Any field requires considerable in-field drilling to keep it productive. When that begins to slow we will know that we have hit the bottom of the barrel.
rockman on Tue, 22nd Nov 2016 2:52 pm
Shorty – When that begins to slow we will know that we have hit the bottom of the barrel.” The Permian Basin might should be the focus then .
Dredd on Tue, 22nd Nov 2016 5:03 pm
Global warming is holding on too (Watching The Arctic Die – 2).
Seems like the issue is “which one is the trump?”
Boat on Tue, 22nd Nov 2016 6:12 pm
Short is back with more crazy numbers brought to you by the hills group. The glut at it’s max was 3 Mbpd (that was the $27 per barrel we saw a few months ago. Then the market over time went to $50 because the glut dropped to around 200,000 per day. Nigeria and Lybia start pumping and oil drops to $43 with the glut now standing close to 500,000 per day. Thats where we stand today, except, because OPEC threatens cuts , traders drove the oil price to $50.
If OPEC does not cut production think of oil around $35.
Besides that proposed cut Nigeria and Lybia may or may not add production in large quantities. Their production relies on unrest. If for example peace broke out, there is as much as 1.5 that could hit the market in 2017. That 500,000 glut could grow quick.
GregT on Tue, 22nd Nov 2016 10:25 pm
Boat is back with more mindless stupidity. From 1947 to 1973, a barrel of oil was less than 20 bucks in 2016 inflation adjusted dollars. Now that it costs over twice as much, Boat attributes that to an oversupply. You just can’t make this shit up.
Boat on Wed, 23rd Nov 2016 12:02 am
greggiet,
Speaking of making shyt up when did I ever say the price of oil hasent gone up. Lol you have demand and you have supply. The price goes up when supply is short of demand. The price goes down when there is more supply than demand. But geeze greggiet there are many more price dynamics that come into play over time. The price of health care, regulation, adding ethanol to the fuel mix, geopolitics and yes…….wait for it, the added expense of unconventional oil. Many, many other factors go into a gal of gas, even more a mile driven down the road. At the end of the day the market seeks to balance supply and demand (count barrels) for today’s prices.
Sissyfuss on Wed, 23rd Nov 2016 1:08 pm
I get no joy out of being right when everything around is going so wrong.
makati1 on Wed, 23rd Nov 2016 5:38 pm
Sissy, Casandra must have had the same feeling.
denial on Wed, 23rd Nov 2016 6:35 pm
Why is all this talk that the price of oil won’t go over $60 again? I don’t understand…it seems like it will go hi again and then crash…hi and crash then massive inflation as helicopter money comes to the rescue then crash and it is all over…talk of prices at no higher than x seems foolish to me…especially in a manipulated system as ours
Boat on Thu, 24th Nov 2016 12:59 am
Sissfussed,
It,s all so bad, lol. Stock market at historical highes. My low interest rate on the house, home values at historical highes. Gasoline and gas prices at low prices. Electricity prices have been flat for years. Only 1 bad areas I see. Health care. All in all if you have skills and a job you should be doing fine.
Sissyfuss on Thu, 24th Nov 2016 5:39 am
Boat, you see no farther than the end of your nose.
makati1 on Thu, 24th Nov 2016 6:20 am
Sissy, a Pinocchio nose? It must be nice to live in his mind. All brilliant colors and Hollywood music. No reality.
peakyeast on Thu, 24th Nov 2016 5:57 pm
@denial: Yeah that should seem likely to happen.
The question is wether there is a PPT sitting ready to manipulate things back to where TPTB wants them.
http://www.rense.com/general52/secretsoftheplunge.htm
Apneaman on Thu, 24th Nov 2016 6:41 pm
Boat, what are those stock market highs based on? Solid growth and low debt? Debt – you avoid talking about it like the plague. Anything that will put a dent in that happy story you just made up is ignored. I just ate some barbecued ribs and I’m full, therefore there is no hunger on the planet. If I’m full that’s all the counts – not the other 7.5 billion. Boat how many billions did those record breaking rain bombs cost Houston? Oh ya, it don’t matter because you have cheap gas.
Houston’s debt passes Detroit’s
“Houston’s debts are now bigger than Detroit’s.
According to one key measure of fiscal health, Houston’s situation is nearly as bad as that of Chicago, which is starting to collapse under its debt burdens.
The city’s financial reputation took a hit earlier this month when Moody’s Investors Service revised its outlook on Houston to “negative.”
Even that review doesn’t capture the depth of some of the holes the city’s financial planners have dug.”
http://watchdog.org/230344/houston-debt-detroit/
“From the crumbling bridges of California to the overflowing sewage drains of Houston and the rusting railroad tracks in the Northeast Corridor, decaying infrastructure is all around us, and the consequences are so familiar that we barely notice them—like urban traffic congestion, slow-moving trains, and flights that are often disrupted, thanks to an outdated air-traffic-control system. “
http://www.newyorker.com/magazine/2016/04/18/inside-americas-infrastructure-problem
Historic Deluge Hits Texas. Houston, You Have a Problem.
“At one point on Thursday, flash flood watches covered more than 183,000 square miles of Texas, an area about the size of Germany and England combined. More than 15 inches of rain fell just northeast of Houston in a span of 12 hours on Thursday, just a few days after more than 20 inches fell in two days northwest of the city—the region’s second 100-year rainstorm in less than a week. (Statistically, a 100-year rainstorm is a rainfall event that has a 1 percent likelihood of occurring in a given year based on that region’s climate history.) The Brazos River west of Houston has crested more than four feet higher than previous record levels.”
http://www.slate.com/blogs/the_slatest/2016/06/03/historic_floods_in_houston_texas.html
Everything is awesome Boat. Y’all super rich and have cheap consumer goodies and low taxes. Which is why you are well on your way to 3rd infrastructure which is being sped up by ever increasing AGW jacked weather events. Again, it don’t count because of cheap gas N stuff. Some politicians and economists told you the infrastructure would just maintain itself eh? No tax dollars needed.
You think it’s all so cheap, but many others in your cancer city and the world over have been paying the price. Some the ultimate price, like those 10 dead Texas soldiers in the last rain bomb. You and yours are not immune retard. Y’alls day is coming and sooner than you think and the only way you will not see your people suffer is if the consequences get you first. Spare me your fake texas swagger.
Boat on Thu, 24th Nov 2016 6:59 pm
Ape,
The market highs are based on millions of people betting profits and dividends will continue to grow.
makati1 on Thu, 24th Nov 2016 7:19 pm
Ap, Boat is a good argument for abortion. ^_^
GregT on Thu, 24th Nov 2016 8:11 pm
“My low interest rate on the house”
It doesn’t belong to you Kevin. Don’t believe me? Stop making payments on it and pay close attention to what happens.
GregT on Thu, 24th Nov 2016 8:13 pm
Mak,
Boat is a good argument for lobotomy.
makati1 on Thu, 24th Nov 2016 8:41 pm
GregT, When he cannot pay the mortgage or the taxes, he will find out what he “owns”. ignorance is bliss.
Abortion is cheaper but it is too late. Your suggesting is a good one.
GregT on Thu, 24th Nov 2016 9:35 pm
“The market highs are based on millions of people betting profits and dividends will continue to grow.”
The markets are high Boat, because millions of people are desperately looking for ways to not lose their entire life savings by keeping their money in the banks. (Or under their mattresses)